Need a Break from Excessive Zero Emissions Compliance Payment Obligations? You Have Options.

New York Public Service Commission Creates Opportunity for Relief from Expensive “Zero Emissions Compliance” Payments in Cases of Substantial Hardship

New York’s Clean Energy Standard (“CES”) requires, among other things, each Load Serving Entity (“LSE”) to purchase Zero Emission Credits (“ZECs”) from the New York State Energy Research and Development Authority (“NYSERDA”) in proportion to the statewide load served by such LSE in a given compliance year. The ZEC payments, in turn, subsidize the continued operation of nuclear baseload power to assist New York in meeting its ambitious clean energy and environmental goals. In order to determine the share of each LSE’s ZEC contribution, the CES requires NYSERDA to allocate 27,618,000 ZECs among LSEs in proportion to each LSE’s share of statewide load. To the extent that an LSE’s load profile fluctuates throughout a compliance period, NYSERDA will issue a true-up to reconcile overpayments or underpayments. However, due to a nearly two-year lag between when an LSE’s ZEC obligation is first calculated and the time in which that LSE is made whole through true-up reconciliations, some LSEs may experience significant financial hardship as LSE’s with load loss temporarily subsidize other load-gaining market participants. To address this concern, some LSEs have petitioned the New York Public Service Commission (“Commission” or “PSC”) and been granted relief in the form of a modified ZEC compliance payment obligation. This provides an opportunity for LSEs experiencing load fluctuation to have their ZEC costs mitigated in order to avoid exposure to the financial burden of overpayments.

Pursuant to the CES implementation schedule, NYSERDA informed LSEs in December 2016 of their ZEC obligations for the 2017 ZEC compliance year, which runs from April 1, 2017 to March 31, 2018, and requires LSEs to purchase ZECs at approximately $17.53/MWh in proportion to their statewide load. While the number of ZECs each LSE was required to purchase was set based on load data from the previous 12-month period (December 2015 – December 2016), the CES implementation schedule does not provide for full true-up and reconciliation of those payments to reflect actual load until October 2018. As such, by the time an LSE’s load data is analyzed and its ZEC obligations are adjusted to reflect actual load, nearly two years would have passed, during which certain LSEs—particularly those with fluctuating load, such as Energy Service Companies (“ESCOs”)—may have experienced significant increases or decreases to their load profiles. During that time period, LSEs experiencing load loss may be exposed to significant financial burden because they are obligated to pay for ZECs far in excess of their customer load. In effect, this becomes a subsidy benefiting other LSEs—until its ZEC overpayments are recovered through reconciliation.

Realizing the potential financial exposure, some LSEs have petitioned for a reduction in ZEC obligations, which the Commission has granted upon finding “substantial” load loss. While the Commission has not specifically defined what constitutes “substantial” load loss, two LSEs have received approval to reduce their ZEC obligations, one which experienced 35percent and the other a 64percent decline in load from its base period. See Case 15-E-0302, Proceeding on Motion of the Commission to Implement a Large-Scale Renewable Program and a Clean Energy Standard, Order Modifying Compliance Payment (issued July 14, 2017)[Liberty Order]; Id. (issued Feb. 22, 2018) [Astral Order].

Pursuant to the CES, the 2018 ZEC compliance year runs from April 1, 2018 to March 31, 2019. Assuming the PSC applies the same implementation schedule, an LSE’s ZEC payments will be based on load data from 2016-2017, but will not be trued-up and reconciled until approximately October 2019. While the PSC has directed NYSERDA and PSC Staff to develop an implementation plan that would modify the current fixed ZEC obligation/true-up with a flexible “pay-as-you-go” model, the timing of such an implementation plan is unclear and its ultimate adoption is uncertain. It is unlikely that this “fix” will be in place prior to the 2019 compliance year.

In March 2018, LSEs will be notified by NYSERDA as to their 2018 ZEC obligation, which will be based on that LSE’s 2016-2017 load. To the extent that an LSE anticipates a discrepancy between last year’s load and its current or expected 2018 load, it should consider petitioning for a reduction of its ZEC obligation. It is important, however, that LSEs approach this opportunity very carefully. The Commission has made clear that LSEs may not, on their own accord, reduce their ZEC payments unless and until a petition is filed and approved by the Commission. At least one LSE has learned this lesson the hard way—through a Notice of Apparent Failure that could have resulted in loss of the ESCO’s eligibility to operate.

Phillips Lytle’s Energy Practice Team has extensive expertise in Public Service Commission/Utility regulatory matters, including all aspects of retail energy regulation in New York and formal petitions to the Public Service Commission. For more information about Phillips Lytle’s Public Service Commission expertise, please contact Thomas F. Puchner, Partner, at (518) 618-1214, tpuchner@phillipslytle.com, or Kevin C. Blake, Associate, at (716) 847-7082, kblake@phillipslytle.com.

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